Exclusive: GM capital plan may delay credit rating upgrade

By Ben Klayman

DETROIT (Reuters) - General Motors Co’s (GM.N) decision this week to give back up to $10 billion to shareholders over the next two years will likely delay one of its important goals: achieving a top-tier credit rating that would benefit its growing auto finance unit.

The No. 1 U.S. automaker has been building its GM Financial unit through acquisitions and more aggressive marketing to dealers. Automakers use in-house lenders to offer discounted financing on new cars and trucks for consumers and dealers. Reaching a single A credit rating would give GM greater flexibility to fund GM Financial at lower cost.

GM is still three steps from an A rating, but officials with Standard & Poor's Ratings Services and Moody's Investor Service said this week that the next upgrade could be delayed by GM's decision Monday to launch a $5 billion share buyback and boost its dividend.

"The way we are assessing the company's trajectory in terms of any upside ratings is that as of now it appears unlikely in the next two years," S&P credit analyst Nishit Madlani told Reuters.

GM on Monday said it agreed to operate with $20 billion in cash reserves, returning any excess to stockholders. As of the end of 2014, it had stockpiled $25 billion in hopes of rebuilding its debt rating.

S&P reaffirmed its investment grade rating of BBB- and a stable outlook, but Madlani said "in case of a modest downturn that level of cushion is not something we are comfortable with."

Before Monday, S&P might have considered an upgrade in 2016, he said.

Moody's has also delayed its timeline for a GM upgrade, senior vice president Bruce Clark said.

"The likelihood of ... being able to look at the rating for something positive happening is probably not going to happen until '16," he said.

Moody's has an investment grade rating on GM's corporate credit facility, but its senior unsecured debt is a notch below investment grade.

GM Chief Executive Mary Barra Monday said maintaining an investment-grade balance sheet was key.

President Dan Ammann said "a solid investment grade credit rating is a critical pillar of our strategy" in relation to GM Financial. Chief Financial Officer Chuck Stevens said GM did not expect any negative impact on current ratings.

The credit agencies said GM's rating is likely to tread water, especially until it becomes clear how much the company will pay in costs related to litigation over delayed recalls of millions of vehicles with defective ignition switches. Operating costs also could rise after GM negotiates a new labor deal this fall with U.S. hourly workers.

Fitch Ratings, the third major rating agency, has GM's credit rated a step below investment grade with a positive outlook. Analysts expect an upgrade within months, but they expect Fitch to join the others in waiting after that before moving the company's rating up again.

Fitch senior director Stephen Brown said his agency could take a negative view if GM's cash position dipped below $20 billion for a prolonged period.

Meanwhile, rival Ford Motor Co (F.N) says it wants to achieve a single A credit rating by 2020.

Goldman Sachs credit analyst Brian Jacoby said he is sure GM has a similar goal, but has not spelled it out.

“It would have been nice to hear them say a little bit more about ultimately how they want to have higher debt ratings,” he said.

(Reporting by Ben Klayman in Detroit; Editing by David Gregorio)